This week’s challenge is to make next month’s budget. Budgeting was a key part in paying off our house early. I thought it would be helpful to put together an introduction to budgeting. I have the brain of an artist and budgeting does not come naturally to me. Luckily we have been able to put some processes in place, and figure out some tricks to make budgeting easier.
Budgeting is just taking all of your money and telling it where to go instead of getting to the end of the month and wondering where it went. Here is the process that we go through to track our spending.
- Budgeting can be stressful! Especially if you are just starting out and talking about money with your spouse can be frustrating. So start by making your budget session an event. Set aside a full night of the week, order your favorite takeout and grab a beer along with your paper and pencil.
- Get out your laptop and pull up your bank statement from last month so that you will be able to make educated estimates of your spending.
- On the top of a piece of paper write out your take home income. Then make a list of all of your spending categories. I made a little printable worksheet which will be helpful to get started available here.
- Now go through and assign each of those categories an amount starting with necessities. Most of them will be predictable like your internet, phone, and water bills. You can just grab these exact amounts from last month’s bank statement.
- The first category in our spreadsheet is giving. We believe in giving 10% of our income off the top and did that throughout the process of paying off our house. You can give to whatever organization that you want, but I would encourage you to do it. It changes the way you see what you earn. This will probably end up being its own blog post.
- The second category is retirement. You should make your giving towards retirement automatic. We have it taken out electronically so that we don’t even have the chance to spend it.
- Once you have gone through necessities, you should see what other goals you want to accomplish like paying off debt or going on a vacation and allocate money to those categories.
- Fill up every category until you have $0 unaccounted for.
- Find a way to track your spending for the month. You can’t manage what you don’t measure, so you HAVE to find a way to track your spending in a way that works for you. We use mint.com, it automatically tracks our spending and gives us a clear overall picture of our finances. It also notifies me by e-mail if I am reaching my spending limit in a particular category. There is also the envelope method, and I have friends who track all of their spending in a little notebook.
- Repeat on a monthly basis. Once you have the initial budget made up it will make next month’s tracking much easier.
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